Steel City Cowboy

Wednesday, August 12, 2009

Simple Healthcare Economics

I was just checking out some of the ads on craigslist that want you to "HELP SOLVE THE HEALTHCARE CRISIS - MAKE $9-13/HOUR!". And, while they aren't speaking (directly) for the current Presidential administration or band of syphilitic baboons inhabiting the Capitol Building, they do give an insight into the left's popular perceptions.

Simply put, the left feels thusly:

THE PROBLEM: Health insurance premiums are already too expensive for people of modest means to afford, and are quickly becoming unaffordable for an increasing number of Americans.

THE SOLUTION: A government-run health insurance plan.

While it's certainly an extremely distilled version of the position, I think it's a fair one. It is, really, the essence of both their argument and their solution.

So, the question one must ask when presented with this point of view is: how does the proposed solution actually solve the problem? In other words, what is the mechanism by which it will function?

First, I think you have to address the initial problem. The main weakness of the leftist argument in this case is that they have defined the problem incorrectly. The proper addendum to the leftist problem statement should most likely read "...for an increasing number of Americans DUE TO CORPORATE GREED." They believe that the greater-than-inflationary rise in health care prices and subsequent rise in insurance premium pricing is due in large part to corporate (read: big pharma, big hospital and big insurance) greed. Unfortunately for all of us, that is not the case.

Look -- I have no doubt that people in the insurance industry want to make as much money as they can. So do hospitals. They want to be able to stay in business, and continue providing jobs and even raises to their employees and nice payments to their shareholders. In that sense, they are greedy, which makes them no different than any other industry or business in this country. And yet, somehow, greed in this industry is a problem. A systemic, show-stopping problem.

The statement that "many people involved in health care want to make lots of money" may be an indictment on its face to leftists, but to me it is not. In light of the fact that our capitalist system (i.e. greed) in the United States has lead to the greatest period of prosperity and human rights of any other system in the history of human existence, and of the spectacular failures of command-based systems (socialism, communism, touchy-feely-Euro-lite-socialism) to be able to produce any effect beyond the furtherance of mediocrity and often much, much worse, simply accusing "greed" of something bad doesn't fly.

Okay, you don't know it, but I just wrote a whole big long thing then deleted it, because this is simpler than eating baby food and there's no need to be verbose:

- Healthcare services are perceived as valuable.
- Due to the way that Medicare, Medicaid and employer-deducted health insurance are structured, healthcare services feel either free or nearly free to us.
- A system in which something of great value appears to be given away at an enormous discount at all times is unsustainable due to basic economics.

We're just now starting to see that unsustainability.

Adding a government run health insurance plan would do what, folks? That's right -- make healthcare services feel like even more of a discount than they do today.

We all pay for the healthcare services that are distributed today: through co-pays (which are very small -- our only real "felt cost" in the system -- compared to the value of the services we receive for them), payroll taxes (Medicare, etc.), and before-tax deductions for employer-bought health plans. We are paying for this stuff, but it doesn't feel like it to us because we never saw that deducted money in the first place. That causes everyone to act differently than they otherwise would, severely distorting the market.

So, if we believe the theory that prices are rising quickly due to corporate greed, we implement a government insurance plan. A public option. Unfortunately, that only makes the real problem -- a felt cost versus perceived value imbalance -- much worse. That kind of system, as we see with Medicare, is unsustainable. It has a finite economic horizon.

We need to address the base problem -- felt cost/perceived value. The perceived value is either going to remain the same or go up over time as new, better treatments become available. We cannot, nor would we want to, harm the perceived value of healthcare services. What we need to do is to change the felt cost side of the equation. We're already paying for this stuff -- it just doesn't feel like it.

I contend that the only way to restrain the future charged price of healthcare services is to take a more market-based approach, and that begins with removing health insurance as an untaxed benefit of employment. It's compensation, and should be treated as such. When people see that they can either have health insurance or, say, $450 more per month in their paycheck, behaviors will begin to change, which will in turn change the pricing structures of providers.


  • At 8/21/2009 9:46 AM, Blogger K T Cat said…

    Oh, how I long for the days when state-of-the-art medical care wasn't a luxury item and was available to all! If only it could be that way again!

  • At 9/24/2009 9:50 AM, Blogger Coco said…

    I totally agree. In fact, I think that health insurance should be solely for catastrophic coverage. I don't expect my auto insurance to cover the cost of my oil changes...

  • At 9/24/2009 10:30 AM, Blogger Roland said…

    Coco -- I don't know that it should be "solely" for catastrophic by law, but we should perhaps have some truth in advertising. "Insurance" is a structure for mitigating the economic consequences of risk -- i.e. pay you if something that might happen, but that we hope won't happen. When people have routine medical care covered by their plan, it's not really insurance, is it? It's more like an installment plan, as in, you pay your monthly "insurance" fee and they cover the day-to-day fees that you will almost certainly incur. That's not "insurance." Perhaps we could push insurers to label things more appropriately. Then you would see that you actual insurance cost was like $100/month for your family, and the installment portion was like $550/month. It wouldn't take a genius to figure out what to do then.

    So yeah, your point is well taken. Most of what people think of as insurance these days is really a transfer of non-taxed income that you never see from your employer to your doctor.


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